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China Investment Corp., one of the world’s largest sovereign wealth funds, is close to closing a $100-million deal to purchase a stake in Vancouver Island forest company Island Timberlands, according to the Wall Street Journal.

The reported move by China into B.C. timber comes at a time when the federal government is reviewing its policies on foreign investment by state-owned funds and less than three weeks after Ottawa rejected a $5.7-billion natural gas purchase by Malaysian state-owned oil giant Petronas.

Further, Ottawa is expected to rule by Dec. 10 on state-owned China National Offshore Oil Corporation’s $15.1-billion purchase of Calgary oil company Nexen. Prime Minister Stephen Harper said on Thursday that the government will be making decisions “very soon” on a framework for dealing with such investments.

The much-smaller Island Timberlands purchase is not expected to attract the same scrutiny as the Petronas and CNOOC deals because C.I.C. is expected to be taking only a 12.5-per-cent stake in the company, rather than buying it outright. C.I.C. also takes a long-term, passive approach to investments, said Gilbert Chan, president of NAI Interactive Ltd., which connects North American companies with Chinese investors.

“They are always strategic. I don’t think people should be too sensitive about this, thinking ‘Hey, they are taking away our stuff.’ They always take a business approach, they are always looking at what will make a good investment for them,” said Chan.

Island Timberlands, which owns 254,000 hectares of prime forest land on Vancouver Island, is part of Brookfield Asset Management, a Canadian real estate and infrastructure company with global holdings. Kevin Mason, analyst with ERA Forest Products Research, said Island Timberlands has built a strong log export program to China and it makes sense for C.I.C. to be interested in owning a piece of the company for that reason.

“From a Canadian perspective, there is a bit of a question on foreign direct investment, but this is a toehold. It’s not as if they will have control of the company. We are a very important supplier to China and obviously, for them, it is good to have a toehold,” said Mason.

C.I.C. is believed to be making the investment in Island Timberlands as a hedge against inflation, according to the Journal, but Mason said the fact that C.I.C. is also acquiring an asset in high demand in China likely plays into the investment.

“We know we have assets that the world wants. This is proof of that,” said Mason. “If this plays out as it has in other commodities, I think we are going to see the Chinese making more investments in fibre-related areas.”

China Investment Corp. is a $300-billion sovereign wealth fund that also manages a portion of the Chinese government’s $2.85-trillion worth of foreign exchange reserves. It opened its first overseas office last year in Toronto.

C.I.C. already has a large stake in Vancouver-based mining giant Teck Resources, buying a 17.2-per-cent stake in 2009 for $1.5 billion. Teck president Don Lindsay has stated in the past that CIC’s holding in Teck has enabled the mining company to form important business relationships in China.

Mason said he expects CIC’s reported investment in Island Timberlands could also open doors in Asia.

“At the end of the day, what do we have a competitive advantage on? It’s our fibre. Our fibre gives us an edge. It isn’t easily replicated,” said Mason. “We have a comparative advantage in growing trees and that’s where we get the best value.

“It’s something we’ve got and they need. We should focus on growing more of it.”

China has been investing in the B.C. forest sector already, said Gerry Van Leeuwen of the consulting firm International Wood Markets. He said Wood Markets forecasts that China will have a wood shortage of 200 million cubic metres a year by 2017, about three times the amount of the annual B.C. timber harvest.

Earlier this week, the private Chinese company Roc Holdings Ltd. reopened a sawmill in Terrace that it purchased from West Fraser Timber. The mill had been closed since 2007. The mill employs 50 workers and makes lumber for the domestic and Chinese market.

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